Relaunching securitisation in the EU
Relaunching securitisation in the EU
Context
Households, SMEs in the same way as large caps in the EU are facing unprecedented levels of investment to achieve digital and sustainable transitions. This underscores the essential role played by a well-functioning banking sector. The Covid19 crisis illustrated in addition that whenever financial markets collapse, banks represent a vital way to swiftly channel funds to the real economy where it is most necessary. Securitisation helps to partially remove credit risk from bank balance sheets and strengthen their capital ratios, enabling them to recycle and reallocate capital.
Since securitisation products played a significant role in the US subprime mortgage crisis beginning in 2007, despite the reliability of European securitisation markets, a deep overhaul of the framework has been achieved by EU institutions. A regulation includes now due diligence, risk retention and transparency rules in addition to a set of criteria that help identifying simple, transparent, and standardised (STS) securitisations.
In parallel specific more risk-sensitive capital requirements for banks and insurance undertakings, were intended to reflect the specific features of STS securitisations.
Yet, European securitisation markets have remained subdued. Does the disappointing limited recovery of these markets reflect concerns among investors regarding the risks associated with the securitisation process itself? Or does not it rather suggest that these EU prudential frameworks require urgent attention, should addressing the current unprecedented financing needs require being able in the EU, to permanently strengthen bank balance sheets?
Contributions to the policy debate
Extracted from the main Eurofi publications (Regulatory Updates, Views Magazines and Conference Summaries)
Key Eurofi
documents
Eurofi policy notes
Public and private
sector views
Public authority views
P. Tang - European Parliament - Securitisation done right - April 2020
Industry views
P. Bordenave - BNP Paribas - A true revival of securitization is now urgent - September 2020